Glossary R

The financial world is full of jargon - i.e. strange words no-one understands. Here we try to explain some of the many technical terms.

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R

Ramping

Logged-on to your favourite bulletin board, you see a message from someone whose views you have grown to respect; 'Get in on stock ABC, its going to go ballistic ...' - the temptation is just too great and you buy some stock, as do many others; the stock does indeed shoot up, then it crashes back down again very sharply, and in the end you have lost a tidy sum.

What happened was that your friend, the poster, had a load of dud stock he wanted to get rid of at a profit - when the price rose in response to his message, he quickly sold the shares he owned.

Posting rumours on the internet to influence share prices was an early tactic (- think of all the possible people one can contact via the web!), but is becoming rarer. Most of the bulletin boards are moderated and will be aware of these kind of stratagems. Ramping stock/posting false rumours can also get you into trouble with the law; you could face criminal charges and even if you avoid this, there is the possibility of facing a large civil damages suit from your victim, especially if you bad-mouthed one of the big guys.

If you still think this is a 'great idea', and want to try it, remember that there is no such thing as anonymity on the web - at least for the ordinary surfer; everything you do is logged somewhere, and you can be traced.

Randomness

The property of having no pattern, no possible simplification, no underlying order among a set of objects. Random objects have no simpler 'explanation' than themselves.

In relation to timeseries, while it is possible to take any data sample whatsoever and fit a curve to it, if the underlying process which generated the data is itself random, then the fitted curve will have no predictive value whatsoever. Let us emphasize this - random processes cannot be predicted - this is their defining feature; they can be categorised by their probability density function, but firm prediction is not possible. A practical test for the existence of randomness is compressibility; if an object is random, you cannot compress it.

When dealing with processes which have a large random component we switch to a probabilistic mode of thinking i.e. instead of calculating what something will be, we calculate what the probability (chance) of an event is. Philosophically, this is uncomfortable for many people - 'things happen for a reason/everything is caused by something else' - the realization that randomness exists in nature at a fundamental level has been crucial to the development of science.

Lots of randomness around when we look at stock prices.

Random Walk

Imagine a drunk man trying to get home; he does not know where he is, has no memory of where he has been, and does not even have a destination in mind - he simply takes a step forward and then a lurch to either side. Who knows where he will end up! No one can predict this - even he has no idea, but you can calculate the probability of where he will end up after a number of steps. The technique for doing this is called monte carlo simulation; what we do is to imagine his walk home many times, generating his sideways lurches according to the relative frequency of their occurrence; after many runs we can see how many times he ended up in a certain place - this is our probability; and this is also how we should bet if for some reason we were watching this process with a group of others and gambling against them.

The random meanderings of a drunkard and the movements of share prices should seem pretty similar to you by now having studied our charts; we hope you understand our analogy, and see that it makes sense. Of course, it is only a first step in our analysis - not the end of it, and leaves many questions unanswered; this is where we have to work much harder and do some clever things to deal with external events and the possibility of time correlations. Going back to our drunk man, suppose we knew he was entering territory where he may be waylaid by thugs, attacked by an ill-tempered local hound, encounter a kebab shop and feel hungry, or does in fact retain some memory of his actions - we still need to calculate his probable destination, and we can - but the problem is now much more difficult, and will be changed from that of our initial model.

In relation to the stock market, the situations facing the drunk are analogous to, e.g. interest rate cuts, corporate scandals, natural disasters, war and investor-driven speculative instability.

Ratio Call Spread

An options strategy; you buy 2 higher strike price calls and sell 1 lower strike price call.

Ratio Put Spread

An options strategy; you buy 1 higher strike price put and sell two lower strike price puts.

Real-time Quotes

Not delayed.

Recurrent

A technical term concerning neural network architectures; recurrent networks have feedback incorporated into their training algorithms - sometimes this improves performance, sometimes it is simply extra complication for little advantage.

Reform, Reforms

Destroy. Destructive measures, ostensibly reasonable, benign, positive. [Orwellian]

Religion

A business that does not pay tax.

If you want to be really, really rich, your best chance is to form your own religion; most human beings have an in-built need to believe in something, so why not take advantage of this.

Remuneration Committee

A bunch of company directors who get together in the pursuit of fairness, accountability and external objectivity, to decide what the salary of some other company director should be. Someone shouts a telephone number, then another shouts - 'sounds like the market rate to me' - and the issue is settled, albeit for minor trifles like - college fund for the grandchildren, free medical and dental for all family members for life, use of company facilities, etc etc.

Top company guys get paid top wages, some of them may even deserve it. The remuneration committee is there to make sure that these very substantial rewards are 'fair'. But in practice, these committees hardly ever veto a proposed package, simply because it would set a precedent which could come back to damage its members in the future.

Reporting Dates

The dates on which companies issue their reports; can be yearly, half-yearly or quarterly. There can be a lot of volatility around these times.

Reserve Currency

A default, backup, baseline currency - something which can always be used, or what some commodity is traded in. Having your own currency as a reserve currency gives you a lot of power over other countries and their economies.

Respectable Scams

Burglars broke into your house while you were away; wearing masks and in broad daylight, they backed a truck up to your front door and carried off all your stuff ... !

- this is one way of stealing from people. Another way is to wear a sharp suit, grin a trusting smile and get them to give you their money, once a month by direct debit, by selling them a with-profits life assurance policy, or an endowment mortgage, or a private pension, or a high income bond, or a split capital trust.

The smarter criminals use this second method as there is no chance of doing jailtime there. The first method is at least more honest and you will be covered by your insurance policy; once recovered from the shock, you will get your money back (- or perhaps even a little extra, you naughty person!); in the second case you will never see your money again.

Return on Equity

Return on equity is calculated by taking a year's worth of earnings and dividing them by the average shareholder's equity for that year. One of the quickest ways to gauge whether a company is an asset creator or a cash consumer is to look at the return on equity that it generates.

Return on equity (ROE), return on assets (ROA) and return on investment (ROI) are all common ratios used to measure, in broad terms, just how good a company is at taking money and generating more money from it; you can get into nitpicking arguments about which one is best at measuring the strength of a company, but I wouldn't bother with them.

Retail Investor

The small private investor - you, me, all the little guys. As opposed to what is presumably, the wholesale investor - Pension Funds, Life Insurance Companies and Investment Banks.

Retained Earnings

Retained earnings measures the amount of capital a company has generated and is best used to determine what sorts of returns on capital a company has produced.

Return on Assets

The last 12 months net income divided by the total assets from the most recent quarter. This is a measure of effectiveness in using the assets at hand in generating earnings.

Rocket Science

Any moderately advanced mathematical techniques are routinely referred to as 'rocket science' by the mass media; often applied to the activities of quantitative analysts in developing derivative pricing models.

StockWave is loaded with rocket science.

Rumour

What you get on the bulletin boards and the newsgroups.

Be very wary of using these information sources - the classic situation is that of ramping or pump and dump, see scams.

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